Trade receivables

Banca IFIS

During 2012 Banca IFIS increased by 20% the number of small and medium sized enterprises in its portfolio, bringing total active customers at year-end to over 3.500. The Bank gives them customised solutions aimed at resolving specific problems related to credit and the management of trade receivables. In particular, Banca IFIS managed to address the needs of companies that boast supply relationships with customers of good credit standing. The factoring contract, frequently used for delivering management services to large businesses and which Banca IFIS is the first in applying for SMEs, allowed the Bank to lend to companies by transferring the credit risk to their customer, i.e. to the account debtor. The assessment and authorisation criteria related to this financial instrument are based on the credit quality and the productive capacity of the company, rather than its equity, allowing Banca IFIS to lend on the basis of its customers' ability to perform well.

The Bank’s intervention is based on a key and constant element, which is the transfer of trade receivables from the customer to Banca IFIS, and on financing them in a very short time period. For Banca IFIS financing a customer means providing companies with the resources to run and expand their business. However, the lending business on its own does not explain how the Bank’s product range is structured. Leveraging trade receivables to provide companies with the necessary support to develop entails new possibilities, whose mix generates intrinsically better results compared to traditional bank lending. In fact, in the traditional approach to lending, the bank’s risk analysis is based on the company-customer and its creditworthiness. In Banca IFIS’s approach, the trade receivables the company-customer manages to generate are assessed: this leads to a new way of providing credit that is more effective than the traditional generalist approach.

 

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For the company-customer, therefore, the dialogue with Banca IFIS becomes not only a financial issue, nonetheless crucial as especially small and medium-sized enterprises often need resources urgently to finance their business; it is also a matter of managing credit. Smaller companies often see an advantage in letting a specialist bank professionally manage their receivables, while also larger companies consider the outsourcing of such a delicate process as managing their accounts receivable as a way to generate value. Furthermore, it is a question of controlling the risk related to the final debtor, in the sense that Banca IFIS’s assessment on the quality of the account debtor, i.e. who in the end must repay the trade receivable, is crucial. Banca IFIS will not act if the final debtor (i.e. the “customer” of the Bank's customer) does not meet the necessary credit requirements.

Therefore, intervention by Banca IFIS is not only a question of trade finance. Alongside the purely monetary support, we provide a service to manage account receivables and to assess credit quality which makes it extremely advantageous for the company-customer to use the Bank’s services.

Banca IFIS has a widespread presence throughout Italy, with 28 branches employing over 150 professional staff responsible for managing trade relations and customer-related activities, ensuring an ongoing relationship between the Bank and companies. For Banca IFIS meeting customers at the latter’s premises is the norm, as are high in-house standards concerning the speed, effectiveness, and directness of the relationship between the Bank and the customer.

In order to develop select relations with the customers, the Bank maintains local contacts with some qualified institutional counterparties, as well as industry trade groups. In this way, it aims to provide customers/associates with a service that is as wide-reaching as possible.

Knowledge of the local area and customers, together with the business model based on factoring mitigating the relevant credit risk, allow the Bank to maintain a relatively limited risk profile for its assets. In particular, the assets’ quality is better than that normally resulting from banking operations involving small and medium-sized enterprises. Those have been affected by the economic situation, and most recently by the recession and the credit crunch which has been roiling markets for five years. This means that the Bank did indeed record losses on receivables, but those are still limited compared to the returns on the operations undertaken. The nature of the Bank's activity allow it to continue operating in favour of companies, even in the face of markets often compelling credit intermediaries to be very prudent in taking on risk on small and medium-sized enterprises.

 

Banca IFIS International

Banca IFIS is one of the most active players in international factoring and stands out from the competition due to its direct presence in foreign markets, such as Poland, Romania, Hungary and India, with around 25 professional staff dedicated to the Group's international business.

Banca IFIS's strength lies in its ability to act not only as a supplier of factoring services but also as a consultant to those customers who intend to move to new markets or are looking for new operating solutions to propose to their counterparts. The Bank’s knowledge of the markets and of the various industrial sectors allow it to validly support the exporter in defining some contractual operational aspects.

Export Factoring is the product dedicated to Italian export companies and includes both recourse and non-recourse factoring. In order to offer the service most suited to the customer’s needs, the Bank, depending on the type of operation proposed and the countries involved, can intervene directly or use the services of its correspondents.

Import Factoring is the service offered to foreign companies exporting to Italy. Also in the case of import, services can be offered directly to foreign companies or to FCI correspondents. In the first case, the three services - management, guarantee against the risk of default and financing of receivables – are almost always present, while in the case of operations notified by correspondents, the focus is usually on management and guarantee against the risk of default. It is important to stress that the Bank has been structured in such a way as to be able to enter into a direct relationship with any foreign company, except for those operating in markets with impediments to the transfer of credit.

In the business segment of non-domestic operations two foreign counterparts are involved: the invoice seller and the account debtor. Generally this type of product envisages the use of non-recourse factoring as the primary choice. Offering non-domestic operations requires a sound knowledge of the law of the countries involved, with particular reference to the conditions required to guarantee that the transfer of the receivable is valid, both for directly managed dealings and for those notified by FCI correspondents.

 

Banca IFIS Pharma

In 2010 Banca IFIS started a new line of business dedicated to creating new integrated management solutions for pharmaceutical companies wishing to transfer non-recourse receivables due from the National Health Service, thus allowing those customers to hedge late payment risk. Purchasing these receivables, as they are due from the Health Service, implies less exposure to the downgrade risk and returns in line with the Bank's standards. In 2012 this line of business grew significantly, establishing important relations with medium and large industry players, and focusing on purchasing receivables selected on the basis of the account debtors' liquidity risk, i.e. the time required for collecting the loan repayment, as well as the concentration risk, in order to further diversify the portfolio.

 

Gruppo Banca IFIS
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